A bad case of nerves

News that the market dropped by almost 2% yesterday – or $25 billion as some headlines screamed – shouldn’t exactly have come as a surprise.

Investors don’t like seeing visions of people rioting in the streets, which is exactly what we saw from Greece (where the economy is on the edge of bankruptcy) and Vancouver (where the local ice hockey team lost the championship game).

I’m pretty sure the Greek news is the one to really be worried about, although I am sure the good people of Vancouver wouldn’t agree.

In fact, the situation in Greece appears to be drawing to an ugly conclusion. The country’s debts are simply overwhelming and the public will not accept the austerity measures (read higher taxes and savage public spending cuts) needed to drag the economy out of the mire.

The collapse we’ve been fearing for what seems like years could be upon us.

What investors are nervous about is the potential knock-on effects of such a collapse.

If Greece goes, will Spain and Portugal follow?

Could the banking system again seize up?

Will Australia’s banks find their access to crucial overseas funds restricted?

Will they in turn be again forced to restrict lending to business?

And all at a time when interest rates are still rising?

It’s not a hugely comforting train of thought. But entrepreneurs should remember that it isn’t just investors that are easily spooked right now – both consumers and businesses remain extremely cautious.

They don’t seem to know exactly what’s coming next, but right now they have a feeling it’s unlikely to be good.

And they’re right. Reserve Bank head Glenn Stevens has made it very clear rates are going to rise again in the next few months. After hearing Stevens speak on Wednesday, many economists are tipping a rate rise in August, although it appears most believe the central bank should probably wait longer than this.

The memory of the surprise rate rise in November last year – which was followed by even bigger increases in mortgage rates – appears to be seared into the mind of consumers and businesses.

The RBA was willing to stamp on still-tepid economic recovery because of the booming mining sector then and Stevens will do it again in the next few months.

At least he’s given us fair warning, although that’s probably a strategy designed to worry consumers enough that the RBA can hold out for perhaps an extra month.

So what do entrepreneurs – who themselves are feeling more than a little anxious right now – do in this environment?

Fight.

Fight to keep your sales team upbeat and working hard to keep their pipelines filled and prospect lists growing.

Fight to close deals. Customers will need to be coaxed over the line and will want to see customised solutions that are perceived as less risky.

Fight to ensure staff balance the need for growth with the need to run as leanly as possible.

Fight to keep the banks on your side.

Fight to keep your board and investors focused on the long-term.

Fight to stick to your value proposition and not be tempted to veer off into areas that promise quick buck.

Most of all, fight to remain cautiously optimistic about the future.